US Aid to Pakistan: Response to CGD

By Anjum Altaf

My critique of the Center for Global Development’s report on US aid to Pakistan has elicited a comment from the authors. I appreciate their willingness to engage in a discussion and reproduce their comment in full before offering my own reactions to explain why I remain unconvinced by their arguments.

“It is not aid that needs to be fixed, but the governance of the country. The report makes it quite clear that it is not aid that will do so and acknowledges it may be worsening the problem. Yet it proceeds to make the case for aid. And that is what makes Beyond Bullets and Bombs almost beyond belief as well.”

The difference in our perspectives seems to boil down to two questions: is Pakistan more likely to solve its fundamental development problems with American engagement and support or without it? And, can aid be given more effectively than it has been given in the past?

Dr. Altaf and others (including some of my colleagues here at CGD) are ready to wash their hands of aid to Pakistan altogether. Yes, they say, reform tariffs and create investment policies to help the Pakistani private sector expand. But stop giving aid. It’s not helping and trying to change it to be better is futile. Come back maybewhen Pakistan has sorted out some of these issues on its own—at which point, it may not even need or want aid.

In contrast, our report describes a set of policies—financing programs where reform is already underway, paying for verified results, delaying disbursement where it seems aid is most likely to blunt pressure building for reform, and supporting upgrades to the democratic process that expand the space available to Pakistanis advocating for change—that could make aid play a net positive role in promoting reform in Pakistan. We suggest that other tools, ranging from sensible trade policy to diplomatic engagement to get stalled political negotiations on certain reforms moving again, must be part of the solution.

Altaf and others suggest that Pakistan would be better off under a counterfactual scenario in which the United States gives no civilian aid to Pakistan. But this approach has been tried before. At several points in Pakistan’s history, the United States has turned away from Pakistan, most recently for much of the 1990s. That period exacted a lasting toll on the U.S.-Pakistan relationship and did not spur significant motion on economic reform.

In 2009, the United States decided on a new approach to Pakistan—offering greater support to Pakistan’s people and its democratic system, not just its military. Regardless of whether you think a $7.5 billion aid package was a good way to show that support, cutting off economic aid would set the United States’ relationship with Pakistan back by a decade. Far from increasing the legitimacy of Pakistan’s civilian leaders, it would show that the leadership that matters in Pakistan still sits in General Headquarters in Rawalpindi, not in the democratic federal or provincial governments.

We agree with our critics that aid will be only a small piece of the solution in Pakistan, and there are many other things that matter more. But we believe that aid can help. Done well, aid can be part of a broader strategy of engagement that supports Pakistani efforts to finally take the necessary steps to become a prosperous and secure country over the next decade. That is the way development in Pakistan will support U.S. interests—and the metric by which a U.S. development strategy should be judged.

The first point I wish to make is that the stance on aid ought not to be a function of cowardice or bravery. I had argued in the critique that the logic of the argument in the report did not support the case for the continuation of aid. All the hard evidence pointed to its failure in the past while the arguments for continuation rested mostly on hopes and prayers. It is not obvious why one needs to be brave in the face of such strong evidence?

The authors of the report boil down our differences to two questions the first of which they posit as the following: “Is Pakistan more likely to solve its fundamental development problems with American engagement and support or without it?” The point I made in the critique was precisely that the authors had not addressed this question analytically which is why I had termed the report advocacy, not analysis. There was no counterfactual showing what was likely to happen in Pakistan without aid from the US. In the absence of such analysis, the authors’ claim to the contrary should carry no more weight than a self-serving assertion.

In support of this assertion the authors claim that the alternative of no-aid has been tried before when the US turned away from Pakistan, most recently for much of the 1990s. But in doing so, the authors run afoul of perhaps the strongest recommendation in their report – that development aid should not be tied to security concerns. In all previous cases when aid to Pakistan has been suspended it has been as punishment for some political transgression or the other. The allocation of aid has never been decided on objective criteria related solely to its effectiveness and independent of security objectives. The argument in the critique to suspend aid was partly based on the inability of the report to show with any credibility that aid effectiveness would improve in the future.

The linkage of development aid with political concerns is so ingrained that despite the authors’ strong commitment to separation, their clinching argument for not suspending aid is that “it would show that the leadership that matters in Pakistan still sits in General Headquarters in Rawalpindi, not in the democratic federal or provincial governments.” The case for development aid seems to rest on the fact that General Headquarters is opposed to it while the political leadership is for it and at this time the hand of the latter has to be strengthened. There is no discussion here of whether conditions exist or not for aid to be effective for development purposes.

A further argument for aid seems to be that “[I]n 2009, the United States decided on a new approach to Pakistan—offering greater support to Pakistan’s people and its democratic system, not just its military.” This is a decision the US is free to make but that does not render it a sufficient argument. Surely, the US would not want to aid Pakistan’s people against their will, which seems to the sentiment at present that could be verified by a referendum. An argument to the contrary would surely be considered anti-democratic and one of arrogance implying the US knows what is good for the people of Pakistan better than the people themselves.

The second difference in perspective posited by the authors pertains to whether aid can be given more effectively than it has been in the past? Surely it can, but there is nothing in the report that gives comfort that it would be in the conditions prevailing in Pakistan. The authors mention several possible ways of implementing aid better including withholding its release which can be interpreted as a partial suspension. But they undermine their intent by advocating continued aid for one or two major projects in the hope that reforms would be put in place during the implementation. In the critique I had pointed out the incentive implications of offering this huge loophole.

The point at issue is that as far as the Pakistani citizen is concerned the US is faced, rightly or wrongly, with a huge trust deficit regarding its intentions pertaining to aid. This trust deficit is too huge to be repaired on the fly. It needs disengagement and re-engagement on terms that are very transparent to all. This new engagement on development has to be completely independent of security concerns both in fact and in appearance. In the future, aid funds could be available on meeting certain well-defined performance benchmarks much as European countries have to meet for eligibility to the European Union. And concessions could be reimbursed only on satisfactory completion of projects that qualify for assistance. There is need to pay a lot more attention to incentive compatibility in the design of donor assistance to countries like Pakistan where accountability of governments to their own citizens is minimal if not completely missing.

In the interim, while the process of re-engagement on fresh terms is negotiated, the US could signal its good intentions by pooling its funds with those of other donors who are considered more acceptable by the people of Pakistan. This voluntary cessation of direct control in itself could go a long way to repair the trust deficit that stands in the way of a productive and honest relationship between the two countries.

One Response to “US Aid to Pakistan: Response to CGD”

“The difference in our perspectives seems to boil down to two questions: is Pakistan more likely to solve its fundamental development problems with American engagement and support or without it? And, can aid be given more effectively than it has been given in the past?”

No international donor has been effective in promoting development in Pakistan. In fact, the record of aid is tragic because donors and their client state are not committed to just and sustainable development. One of the worst outcomes is an addiction to aid. It being readily available, there is no serious attempt to increase domestic savings.

All funds are fungible. Pakistan’s nuclear bombs are unthinkable without large quantities of aid — such as in the Social Action Programme boondoggle — facilitating diversion of aid.

Aid programmes are never seriously discussed in the National or even provincial assembly. Unaccountable policy makers manage the decisions. Hence institutions of participatory democracy are weakened. If the power of the purse resides with Islamabad, then the whole idea of provincial autonomy becomes trite.